S&P cuts Egypt's junk rating another notch

MelodieWarner

Standard & Poor's Ratings Services moved the Arab Republic of Egypt's rating another notch further into junk territory, saying the likelihood of Egyptian authorities meeting their fiscal targets, easing external pressures, and strengthening the social contract has deteriorated.

Egyptian President Mohammed Morsi swore in new cabinet ministers Tuesday, after a reshuffle that strengthened the position of the Muslim Brotherhood and provoked complaints from the nation's disparate opposition. The reshuffle also removed two ministers who had been closely involved in negotiations with the International Monetary Fund on a $4.8 billion loan to prop up Egypt's ailing economy.

S&P said the downgrade reflects its view that the Egyptian authorities have yet to put forward a sustainable medium-term strategy to manage the country's fiscal and external financing needs.

As a result, the firm expects the country's financing pressures to remain elevated and comprehensive donor support, including from the IMF, to remain elusive.

S&P said it could upgrade the rating if Egypt's political transition strengthens the social contract and if a sustained increase in net international reserves provides evidence of easing in external pressures.

But the firm also said it could lower the rating if it decides the government is increasingly unlikely to prevent a further significant deterioration in external indicators.

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